Why Vale's Massive Potash Project Isn't Bad News for Juniors


"Vale's huge Rio Colorado project might seem like a buzzkill for Brazil-based juniors, but according to Mackie Research Analyst Jaret Anderson, there is plenty of room for additional potash projects in the country."

It might be seen as a major buzzkill for undeveloped South American potash projects. Vale has decided to go ahead with its gargantuan Rio Colorado potash project in Argentina, Bloomberg reported yesterday, that is projected to cost about $6 billion to build. It was under review following the expropriation of YPF, an Argentine oil producer, a move that sent shockwaves across resource sectors based in Argentina.

As Mackie Research analyst Jaret Anderson noted in a research note to clients on Friday, Vale's proposed four-million-ton-per-year potash mine in Argentina - on the doorstep to increasingly fertilizer hungry Brazil - is to meet about eight percent of global potash demand.

"This is one of the largest potash projects in the world (the only larger project is BHP Billiton's Jansen project in Saskatchewan at 8.0 mtpy)," Anderson wrote.

That could, as Anderson noted, be seen as having a negative impact on the global supply-demand balance. He doesn't think that will necessarily be the case, however.

Assuming three other potash projects in the region also come online - Verde Potash's Cerrado Verde, Rio Verde's Sergipe and Vale's Carnalita - total demand in Brazil would still outstrip supply and then some. Brazil's potash consumption was 8.1 million tons per year in 2011, Anderson said, and is set to grow to 12 million tons by 2020.

Even with four new South American potash projects churning out additional production (a "lofty assumption" at that, Anderson said) in all they would only add up to 9.7 million tons of supply, about two million tons short of forecast demand in Brazil by the end of this decade.

"Bottom line: Even if all of these projects are built and all of the output went to Brazil (it won't - potash consumption in Latin America ex-Brazil was approximately 2 million tons last year), Brazil will still be short potash in our view," Anderson said.

Kip Keen

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